Suppose that call options on a stock with strike prices $25 and $35 cost $7 and...
Suppose that call options on a stock with strike prices $25 and $35 cost $7 and $2, respectively. How can the options be used to create (a) a bull spread and (b) a bear spread? Construct a table that shows the profit and payo↵ for both spreads.
Homework Answers
Add Answer to:
Suppose that call options on a stock with strike prices $25 and
$35 cost $7 and...
Call options on a stock are available with strike prices of $15, $17.5 , and $20...
Call options on a stock are available with strike prices of $15, $17.5 , and $20 and expiration dates in 3 months. Their prices are $4, $2, and $0.5 , respectively. (a) How can those options be used to create a butterfly spread? 2 (b) What is the initial investment? (c) Construct a table showing how payoff and profit varies with ST in 3 month, for the butterfly spread you created. The table should looks like this: Stock Price Payoff...
Suppose that European call options with strike prices $30, $35, and $40 cost $7, $4, and...
Suppose that European call options with strike prices $30, $35, and $40 cost $7, $4, and $2, respectively. What is the upfront cash flow of creating a butterfly spread using these three call options?
Suppose that European call options with strike prices $30, $35, and $40 cost $7, $4, and...
Suppose that European call options with strike prices $30, $35, and $40 cost $7, $4, and $2, respectively. What is the upfront cash flow of creating a butterfly spread using these three call options? -$13 -$5 -$1 -$3
Suppose that put options on a stock with a strike price $40 and $45 cost $5...
Suppose that put options on a stock with a strike price $40 and $45 cost $5 and $8, respectively. How can you use these options to create a bear spread? Draw a diagram to show the profit of the spread
The table below gives today’s prices of six-month European put and call options written on a...
The table below gives today’s prices of six-month European put and call options written on a share of ABC stock at different strike prices. The stock does not pay a dividend and the risk-free interest rate is 0% per annum. Call Price ($) Strike Price ($) Put Price ($) 13.1 105 8.2 9.7 110 9.7 7.9 115 12.9 Using call options with strike prices of 105 and 110, create a bear spread and show in a table the profit of the...
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are...
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are $3.50, $6, and $7.50, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. For what range of stock prices would the butterfly spread lead to a loss?
When is it appropriate for an investor to...
9. Derivatives | Three CALL options on a stock have the same expiration date and strike...
9. Derivatives | Three CALL options on a stock have the same expiration date and strike prices of $50, $55, and $60. The market prices are $3, $5, and $8, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. What is the largest profit for this strategy at maturity?
10. Use the options prices for Spotify in the EXCEL FILE to create a bear spread...
10. Use the options prices for Spotify in the EXCEL FILE to create a bear spread using the puts with strike prices 170 and 175. Be sure to use the appropriate bid and ask prices. a. What will be your cash flow per share when you set up the position? Show all cash flows: inflows, outflows, and net flow. Inflow Outflow Net Flow b. The maximum profit on the put bear spread is c. The minimum profit on the put...
Suppose the prices of 3-month European call options with strike prices of $40, $45 and $50 are $6.08, $2.70, and $0.86, respectively.
Suppose the prices of 3-month European call options with strike prices of $40, $45 and $50 are $6.08, $2.70, and $0.86, respectively. a) Explain how a trader can create a butterfly spread using these options. b) What is the profit when the price of the underlying asset in three months is $40 c) What is the profit when the price of the underlying asset in three months is $43 d) What is the profit when the price of the underlying...
Three-month European put options with strike prices of $50, $55, and $60 cost $2, $4, and...
Three-month European put options with strike prices of $50, $55, and $60 cost $2, $4, and $7, respectively. 1) How can one create a butterfly spread using these options? 2) Please draw the payoff and profit diagrams of this butterfly strategy. 3) What are the maximum gain and maximum loss of the butterfly spread created using these put options? 4) For which two values of ST does the holder of the butterfly spread break even (with a profit of zero),...
Suppose that put options on a stock with a strike price $40 and $45 cost $5 and $8, respectively. How can you use these options to create a bear spread? Draw a diagram to show the profit of the spread
When is it appropriate for an investor to purchase a butterfly spread? Suppose three put options on a stock have the same expiration date and strike prices of $65, $70, and $75. The market prices are $3.50, $6, and $7.50, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. For what range of stock prices would the butterfly spread lead to a loss?
When is it appropriate for an investor to...
9. Derivatives | Three CALL options on a stock have the same expiration date and strike prices of $50, $55, and $60. The market prices are $3, $5, and $8, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strategy. What is the largest profit for this strategy at maturity?
10. Use the options prices for Spotify in the EXCEL FILE to create a bear spread using the puts with strike prices 170 and 175. Be sure to use the appropriate bid and ask prices. a. What will be your cash flow per share when you set up the position? Show all cash flows: inflows, outflows, and net flow. Inflow Outflow Net Flow b. The maximum profit on the put bear spread is c. The minimum profit on the put...
Most questions answered within 3 hours.
-
At 1 bar, how much energy is required to heat 61.0 g of H2O(s)
at −12.0...
asked 14 minutes ago -
Find the mixed-strategy equilibrium to the Battle of the sexes
game in Figure 5.1 below
Hockey...
asked 16 minutes ago -
Use the following information to answer the next three
questions.
QUESTION 5
As of today, the...
asked 21 minutes ago -
Using the specific identification method: Date Units purchased
Cost per unit Ending inventory March 1 15...
asked 24 minutes ago -
PLEASE HELP, NO ONE IS ANSWERING MY QUESTION AND IT IS SUE TODAY
WORTH 20% OF...
asked 38 minutes ago -
α = 0.0007889 T, I = 2.9 A
Other Magnetic Fields: First, based on your
value...
asked 38 minutes ago -
This assignment is a continuation of the 2nd one. You as a HR
Manager, select an...
asked 40 minutes ago -
Hastings Entertainment has a beta of 0.64. If the market return
is expected to be 13.80...
asked 52 minutes ago -
9. Depository institutions are always:
a. illiquid
b. profitable
c. insolvent
d. all of the above...
asked 1 hour ago -
Use AstroTurf Company's income statement below to answer the
following two questions. Answer these questions with...
asked 59 minutes ago -
How is a firm's task
environment different from its general environment? Provide
examples of both types...
asked 58 minutes ago -
What is one reason Innovators can adopt innovations so
early?
Group of answer choices
they are...
asked 1 hour ago